6 things advisors can do to keep clients happy in a down market

By Katherine Vessenes

Vestment Advisors


I am constantly amazed at the disparity among advisors' attitudes in a down market. Some are doom and gloom, some are like Chicken Little, and others are laughing all the way to the bank. One of the great things about my job is that I get to see inside the offices of dozens of multimillion dollar advisors every year. This gives us a great look at what is working in the bear market and what is not.

Here is what I know: Many successful advisors see the current market as an unprecedented opportunity to capture more business. In fact, we will probably never see an opportunity like this again in our lifetime.

Here are six things successful advisors are doing to keep their current clients calm and attract new clients in the bear market. A quick look will also show you why some advisors are having so much trouble right now.

1. Full, comprehensive, CFP®-level financial plans for all their clients

This will date me, but 19 years ago, I was legal counsel to the IDS Mutual Fund Board of Directors. In that role I had access to the thought processes and business strategies of the management team. Of course, IDS (now Ameriprise) was the first national broker/dealer to promote comprehensive planning. The statistics they had were nothing short of amazing: investors with plans invested more money, were happier with their advisors, stayed with their advisors longer, were less likely to sue, and, incidentally, the advisors made more money (a lot more money). What's not to like about these results?

Yet, even with these results at hand, they were having a hard time getting their advisors to do comprehensive plans.

It seems little has changed. Fast-forward 16 years, and we had another broker/dealer call us because they wanted Vestment Advisors to do gap analyses and business plans for their top 20 advisors over two years. (We call this a SWOOP® report for Strengths, Weaknesses, Opportunities, Obstacles and Plan). Once again, we were taking an intimate peak inside the kimono of the country's top advisors.

Here is what we discovered: Only about 10 percent of these advisors were actually performing comprehensive planning in some form that came close to CFP® guidelines. This was true even though 100 percent were holding themselves out as financial planners. Why is this a problem? These advisors are not meeting client expectations; they are not gathering all the client's assets; and they are not building client loyalty during down markets.

The advisors doing the comprehensive, soup-to-nuts financial planning have clients who are weathering this storm. They may not like the storm, but they do like their advisor and they don't want to can him or her just because the market is down.

These investors know there is more to their financial future than just accumulation -- that's just one part of the puzzle. They also need to think about distribution, protection, estate planning and, of course, taxes. Their advisors are keeping things in proper perspective for them. Or, as I tell our audiences: Get your clients eyes off the market and onto the plan.

If you properly position your services in the mind of the client, they will know that the markets have an impact on their future, but the biggest issue is: Where are they now, in relation to their plan? For most clients, they should still be on track. Or if they're off track, your financial plan will let you know you have to make adjustments.

Now for the doom-and-gloom advisors, here is what they are doing differently: They may be calling their deliverable a "plan," but it's an investment plan, not a financial plan. Typically, it will include some asset allocation models and maybe some pretty boxes showing the client where they live on the efficient frontier. This usually leads to product sales of individual equities, bonds or managed money.

Is this good for clients? Well, sure, but it is only a part of the picture. Presented this way, it encourages clients to be glued to CNN news, watching the market reports. It is also misleading to investors, because investors believe they are getting a full, comprehensive plan; when in reality, they are getting something much less.

I predict these investors will be the ones suing their advisors.

2. Ongoing communication with clients

The prospering advisors have done a great job in advance of the market demise to position themselves as the point of education for their clients. The advisor is the first source the client turns to for information about the markets and economy. They do not look to the evening news to do their thinking for them.

One advisor firm near San Francisco calls their "A" clients every six weeks -- during good markets! During bad markets, it might be every two to three weeks. Most of these calls are informal, friendly "check-ins" and have nothing to do with their finances. They do, however, set the tone and create loyalty and camaraderie. They have been communicating with clients this way since they started their firm many years ago. When I asked an advisor how his clients were fairing, he said they weren't happy with the market, but they were not alarmed, either. In fact, they were pretty calm, a remarkable response considering the economic meltdown.

Another firm, also near San Francisco, has been hosting quarterly educational meetings for clients and guests in their office conference room for many years. The room is large enough to hold more than 24 people at a time. They usually will have an informal discussion on the economic forecast or other financial topics, and then take questions. Part of what is so intriguing about their low-cost system is they don't bother to promote it much to clients. The clients already know which days these educational sessions are being held. There is no RSVP required -- clients just show up and bring friends. Before the market crash, they would get about 12 attending in a quarter. But the last meeting they held brought twice as many people. This firm also reported their clients were amazingly resilient.

I loved this approach -- it was cheap, easy and efficient. Furthermore, it gave the clients a great sense of comfort -- they knew right where to go to get their questions answered.

Surprisingly, few advisors are communicating with their clients via e-zines. Some e-zines are even downright homey, referring to their child's wedding or a recent trip. The few of these that I have seen all have something in common: they are written by the advisor himself -- they are not ghostwritten by a product sponsor company. This allows the advisor to once again demonstrating their expertise and their differentiation while calming the investor's fears.

Special meetings are also being used, and they are less stressful than you think. Hire out the local country club, or even the meeting room at the library. For your content, use some of the PowerPoint presentations that vendors are creating. John Hancock has one that is very popular with the multimillion dollar advisors.

3. The WOW experience. We still believe in giving clients the WOW experience -- something so powerful they can't get it elsewhere. If you have been reading my articles on this subject, you know it is the little, inexpensive things that really make a difference in how the client perceives you.

One advisor from New York had heard me recommend little touches like hot cider (which smells great on a cold day) served in nice china tea cups. This is a big difference from most firms that are serving instant coffee in Styrofoam cups. She went out and got her office outfitted. Later she called me to say she picked up a $1.5 million dollar account from a widow. This advisor swears it was the hot apple cider that closed the deal!

4. Manage the client's expectations.

Out of all of our recommendations, this is probably the most important. It never ceases to amaze me how many advisors don't take the time to really know their client and uncover all their expectations. These would be expectations that go beyond their portfolio, but also on their relationship with their advisor.

Successful advisors have already made it a practice to use an investment policy statement for every client. In creating these documents, they have already had the "life boat drill" with their clients. The advisors have previously run through the horrible imaginables, and gotten a feel for how the clients will react to a severe market downturn. Once they have discussed the options, the advisor creates an IPS to document the client's desires and spells out how the client would want their portfolio handled during downturns. Bottom line -- there are no surprises for the investor.

The one thing I learned working for the directors of a big mutual fund company is that directors and investors hate surprises. Our job is to manage their expectations in such a way that they are never surprised.

I learned one good way to do this from my good friend Mark Bass.He says this to every new client: "I want you to know, over time, something we do will lose money. I don't know what it is, but I do know it will happen."

I would tell clients: "I can't promise you returns -- no one can -- but I can promise you great service."

5. Use alternative investments.

Successful advisors have been using alternative investments like oil and gas, REITs, notes and the guaranteed returns of VAs.

When it comes to investing, clients want to feel like winners. When the market is up, they do feel like they are winning. But when the market is down or sideways, they feel like losers. This is never a great mindset for your clients and is a sure way to be looking at an arbitration claim if it goes on long enough.

What I like about variable annuities is if the market is up, the client feels like they are winning, of course. But if the market is down or sideways, they also feel like they are winners -- a great mindset for your clients.

Now, I know a lot of people, including Suze Orman, think VAs are straight from the devil. I happen to disagree. For some clients, the additional expense of the VA guarantees are well worth the money. I think of them as guardrails over the Mississippi River in Minneapolis. Some people are willing to pay for them and some are not. Just make sure your clients know VAs and other alternatives are available, and let the client decide what they want to do.

The clients whose advisors put them in VAs are now quite happy with those guaranteed 6 percent and 7 percent returns. They really feel like they are geniuses!

6. The advisor has a great attitude.

One of the key differences I have seen in being able to keep your clients in this market is the attitude of the advisor. A few weeks ago, I was doing a conference call with a group of top producing reps and the president of their broker/dealer. The difference in the advisors' attitude was remarkable.

One advisor from Florida, who had been doing all the things I mention in this article, was actually cheerful and upbeat. He reported that they had only had three phone calls from clients and none of the clients he had proactively called were wildly upset. They were picking up a lot of new clients and he was sleeping soundly at night. He credited their financial planning process with keeping clients calm during the down market.

On the other end of the spectrum, we had another advisor on the call who was all doom and gloom, a real Chicken Little. It was like listening to Eyore on downers. This advisor was sure the sky was falling, we had never been in such terrible markets, it would go on forever and he had no idea how much worse it would get or what to say to his clients. Other advisors tried to cheer him up to no avail.

I almost felt sorry for Mr. Doom and Gloom. I realized he was getting all of his advice from CNBC and his clients were probably even more depressed than he was, because his mood was contagious. No wonder his business was in trouble.

The best thing you can do for your clients is to have a good attitude yourself about what is happening in the markets. Create a short story (three to five minutes) on how the markets got to where they are and how long these downturns usually last. Finally, explain the stock market is "on sale." We all love to bargain hunt at Nordstrom's -- now clients can do the same thing on Wall Street.

Your attitude should be empathetic, willing to listen to the client's concerns, and (here is the important part) cautiously optimistic. The attitude you portray will greatly impact how your clients feel. Naturally, your calm clients are the ones who will be referring you business.

Personally, I don't look at my own portfolio because I know about market cycles and I know the direction it will be going. I chose sound companies and I know they will rebound. I also don't listen to network news. Twenty minutes of Shepard Smith on Fox was enough to have me looking for Valium.

In short, I know there has never been a better time to gather new clients, love `em up, and help them reach the financial future of their dreams. These new prospects are unhappy and much more likely to switch advisors now than in an up market. No one wants to make changes when things are working.

Use the market to your advantage! Solidify your current base of clients and get new ones in the process.

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